tv Street Signs CNBC October 15, 2009 2:00pm-3:00pm EDT
he has an all-star list of guests. they will be debating some of the very issues you talked to mr. plaqmack about, bill. "street signs" with erin burnett beginnings with 30 seconds. >> this is cnbc.com news now. companies are reporting fewer defaults for september but delinquencies are rising suggesting bad loans will rise in the future. microsoft has recovered most of the data for the side kick mobile phone. and freddie mac says mortgage rates are higher for the first time in four weeks. the average 30-year remains under 5% at 4.92%. that's cnbc.com news now. i'm julia boorstin. i'm melissa francis in for erwin burnett. which sector will lead the market and take your portfolio higher? our earning central traeam is
ready to go inside the numbers. the energy crisis hits your living room. why big brother could be going after your big screen tv. plus, how americans spent $1 billion on nothing. i can't even take this story. absolutely nothing. we'll have that coming up later. bob pisani is at the new york stock exchange. scott wapner is at the nasdaq. bob, let's start with you. >> the important thing is there are a number of sectors that are moving here. i want to point out what's happening with the refiners. all have had a great morning. we got some of the gasoline inventories out. there was a notable draw down here, so that's important, we saw gasoline really pop up nicely earlier in the day, and as a result some of the big refining names up 5%, 6%, 7%, or 8%. there's some of the big names. look at the financials. here is the big story. let's not get into goldman. the best two companies are out, goldman and jpmorgan. what do you have to look forward to? bank of america. then region banks that are going to be out there in the next few
weeks. they have commercial real estate concerns. finally a quick hook at the credit card companies. american express, we had the september numbers. the credit card delinquency rates were unchanged in september compared to august. that's good news. most of the other ones had a tougher time of it. capital one delinquencies increased. discover, same situation. bottom line is we've got to see a little more improvement in some of the delinquency rates otherwise they will be a real drag on some of the companies. scott, we still can't get in positive for the nasdaq. >> we've beenight range for muc the day. right now the nasdaq is down 0.3%. it's a loss of 8.5 points. you get the feeling this market now after taking that nice leg higher because of the better an expected intel numbers. now it's waiting for google. google is reporting after the bell today. down 1% ahead of that. this is a stock that's been
hitting a new high almost every day. so there's high expectations for what google could deliver after the bell. certainly not only the earnings report itself but the outlook going forward. apple is another big cap stock that's been at high levels. there's a lot to justify from technology stocks. right now apple is down, rimm is down, amazon is down, intel is down. intel giving a little back after a big gain yesterday. make r microsoft is up 2%. a pharmaceutical company up 49% on a positive vote for an m.s. drug. i'll send it back to you. you know how it goes, it's all about google after the bell. >> scott wapner, we're looking forward to that. it's the first full week of earnings and it's been dominated by tech and financials. the focus after hours today ibm and google. so with this week almost in the books, which group is shaping up to take the market leadership? jim goldman is here with what to expect from ibm and google while matt nesto looks at which group is setting the bar.
>> no question these reports will guide trading tomorrow, but let's talk about today. if intel helped power the dow past 10,000 earlier this week, these are the two stocks that can certainly help keep it there. for ibm, a healthy amount of optimism is already built into the shares. the street looking for $238 on earnings. despite a big 58% pop year-to-date and outperforming the nasdaq which sup 38% , some analysts believe there is still room to run. also, watch for gross margins which should top 45%. at google, a similar story as far as optimism is concerned in a world where underpromising and overdelivering is rewarded so handsomely on wall street. google is not doing much to dampen expectations. ad spending is on the rise. the mobile android operating system has seen real traction. street is looking for 540 a
chair. credit suisse up to 600 last week. we'll have complete coverage. >> looking forward to it. thanks, jim. it's the financial giants versus the titans of techs. which is a better bellwether of the market. matt nesto is here to take us inside the numbers. >> it really is going to have to go to the technology group just based on the rate of decline in the revenues. take a look at the first screen that we have here. earnings per share for the financials forecast to be down 25%. technology seen down 17%. both of those would be better than the s&p 500, and i say that because financials actually would give you a positive read when you start seeing some of the better than expected numbers coming in. the sales forecast, 30% decline. much sharper for the financials and the technology sector with an 8.5% decline.
technology is a slippery beast, not unlike our silicon valley correspondent out there, all kidding aside, of course. but technology has three industry groups within it. really the hardway and the semis have been doing very well, but the software stocks have been lagging. so if you take a look at the performance, it's still financials quarter. you did see the outperformance jim showed us versus ibm versus the nasdaq. check out financials versus technology. it's a ten-point victory, if you will, for the financials. 26 to 16. but if you take a look at the year, it's all about technology, my friends. big outperformance. no ten points. that's rookie stuff, man. this is two to one outperformance for technology. so it's still technology's year, no question about it. so far we only have about ten companies out. we know about intel and jpm, but some of the under the radar
stocks like progressive doing very well. nokia a big disappointment. so it's early, but it's leading towards technology. back to you. >> all right, matt nesto, thanks so much. as we decode this day in blockbuster profits, wh a difference a year makes. one year ago the markets got hammered. the dow dropped 733 points. so where are we now? joining us is bernard biel ceo of m.r. biel and company. also richard weiss. thanks to both of you for joining us. bernard, there have been doubters since march 9th as the market has continued to go up. does it go higher from here or are they finally right? >> you know, i am included among the doubters. i am not sure if the market needs to move up from here. i said that what i'd like to see is 15 consecutive trading days where the dow ends at 10,000 or above in order to find out whether this is a true support
lev level. the basic fundamentals of the economy which are not great are still of concern to me. >> what would you tell the retail investor who doesn't know should they pile on, should they stay on the sidelines? what would you tell them? >> i'd tell them what we tell all our clients, stock investing is not for the faint of heart and it's a long-term commitment. been married 20 years. it's not unlike a marriage. in the short term it's rocky, but in the longer term it pays off. if retail investors are looking to get into the market for a longer term commitment, there's a lot of good news on the table. we believe in the positive upward sloping projectory of the u.s. and global economy. that's the way you have to position. in the short term it's touch and go. there's no earnings visibilities. it's hard to tell where
valuations are. longer term we think the fundamentals are there. >> bernard, give me some specific advice for the retail investor. >> i tend to think a retail investor ought to obey the law of inertia. if you're in the market, stay in the market. if you're not in the market, i'd wait a bit. we were as high as 14,000 at one point and went down to 6. if it goes back to the 14,000 level, there's still a lot of room for upside. i'd wait for a clear sign to look in terms of sectors if that's what you're asking. i think sectors you have been focused on today are the correct sectors, financial markets and technology. >> richard, you say you're looking at the chinese calendar, i like this. >> yeah. well, there's a lot of talk about china and riftfully so. last year 2008 was the year of the rat appropriately named given what happened in the markets. this year coincidentally, year of the ox, trudging through. next year, year of the tiger. for us that's the year of the
consumer and hopefully what pulls us out of the doldrumses. >> i like that. >> thanks, guys. harley-davidson announced third quarter sales dropped 21%. the company announced its leaving the sports bikes segment of the market by discontinuing their bue l line. the recovery is based on the consumer. what impact will rising unemployment have on leisure activity. joining us now is scott wine, the ceo of polaris industries. thanks for joining us. i have to ask you quickly about third quarter. it was a tough quarter for everyone around the globe. do you think that was a bottom for you? is it turning around? >> we think it's a bottom. we're proud of the performance of the team. our retail demand was down only
17%. so we continue to ship less into our channel. we think we'll be well-positioned into the fourth quarter and 2010. >> it's a tough time to introduce new models. why are you doing it now? >> it's actually a worse time not to introduce new models. polaris is a company built on innovation. we used this opportunity to put ourselves in a position to continue to gain share but also enter new markets. we entered a couple great new touring bikes in the motorcycle segment. we got into the electric vehicle market. we're using innovation and new product developments as an opportunity to get ahead. >> how are you affording to do that? cutting costs elsewhere? >> you know, i'm probably as much of a pure capitalist you will ever find, but when it comes to cutting costs, we've been very much socialist. i think we've taken a lot of cost out of the business, but maintained room to make investment where it makes sense for the long term.
we made veferinvestments in our international business, in our side by side business which continues to be a market leading product line for us. we try to take a very balanced approach to make sure we can deliver great results this year in a tough market but also be positioned to do well in years ahead. >> i know you recently won a $2.4 million contract to provide offroad vehicles to the army. are you going to expand more into defense? do you think that's a good sector right now or do you think defense spending could be cut through this admission? >> i think defense spending will certainly be cut. i think that's also an opportunity for polaris where we can offer a higher value solution that's not being currently offered to the war fighter today. we believe we can continue very aggressive growth we've had in our military platform. >> is the holiday season generally your best time of year? >> the second half of the year is generally better for us. so we get a lot of demand in the third quarter and then it tends to pick up. alternates between -- a lot depends on snow for us. we have had early snow?
minnesota and we'd like to see that kick start a strong snowmobile season for us. >> it's hard to expect the consume tore spend something like that. how do you convince them? >> it's just letting them what kind of products we have to offer. we talked about innovation. we do have market leading products and we found that consumers want to move towards those. we've also increased our value offering. so we offer more value oriented product line. one of the things -- >> they're still pretty timid right now though, right? >> i think they're extremely timid. we're in the expecting in either the fourth quarter or 2010 a strong bounceback in consumer demand. we believe consumers will continue to rebuild their balance sheets and it is going to be a difficult time. our theme is to make growth happen and we're looking for opportunities to do that. >> thank you for joining us, scott. we appreciate it. >> thank you. up next on "street signs," while everyone is focusing on dow 10,000, there's still a big
realtytrac reports foreclosure on 37,840 in the third quarter. that's up 23% from last year. september's numbers are the third highest on record. >> during the period we had 500,000 homeowners qualify for a trial period in the programs. we had about 2 million households receive a foreclosure notice. the scale is just off the chart. it's tough to see how the modification program will make a dent. >> permission was granted to grenl growth from a judge to spent $47.5 million in bonuses. they filed the biggest real estate bankruptcy last april after amassing $27 billion in debt. signs of a pickup in economic growth pushed mortgage rates higher. it edged up to 4.92%. go to realtycheck.cnbc.com.
>> thanks so much. stick around. we're going to discuss the foreclosure crisis a little bit more. how many more foreclosure filings can we expect? what should the government do to stem this crisis? here now is michelle miers, seen your u.s. economist. we also have armando falcon. thanks to both of you for joining us. michelle, do you think foreclosures are accelerating? have we reached a bottom in the number of foreclosures or there's just a lot more pain to co come? >> unfortunately, there's a big foreclosure pipeline. if you look at liquidations, that's kind of plateaued. i think what's happening is the implementation process has been slowed. a lot of moratoriums. a lot of foreclosures have been held up in the process. so they should start to work their way through. some will be modified, but more will enter the foreclosure and
enter the market as a dispretred sale. >> is there a way to combat the problem or do they need to work through the foreclosure system? >> the government has to look at a multifaceted approach. we have to build the solution out of different programs. i think to begin with, we have to continue to be very aggressive. it's not going to be the ultimate solution to everything. but you have to continue to do that for qualified borrowers. at the same time, you have to work on the demand side. i think it's a good idea to go and expand what was the first time home buyer program into a program that applies more broadly to all home buyers below a certain income or home value amount, and the third thing to do is to think more about renter assistance. we've got a large stock of homes in this country and a large
portion of them through this transition will move from owner occupied to rental homes. >> is there any way to tell among the homes that are going into foreclosure how many of them are people who really wanted to stay in these homes and how many of them are people who are upside down in their house where they owe more than the house is worth, and there's nothing that you could do to keep them in their home. is there they way to know? >> there's no way to know exactly. one doesn't negate the other. there's a lot of folks who want the modification, but the program only goes so far when you're so far under water. you can only go up to 125% loan to value ratio in their mathematics. if you're too far underwater, it's simply not going to work. if you have no job, it's not going to work either. one of the big problems is more and more people who are choosing not to pay their mortgages. we had one on the blog yesterday. got a tremendous response in the blog steosphere from this woman decided she was so far under water, she'd stop paying much
the mortgage company still hasn't contacted her. she's been living there rent free for nine months. >> michelle, another problem that's out there, as i look at the fha as they make new loan was 3.5% down as we sit in the middle of this mess. i wonder, to try to dig our way out of this mess, are we creating another bubble down the line where we will have the same problem? >> that's something a lot of people worry about because there's more risky lending going on with fha loans, but i think provided home prices bottom which we think they're close to the bottom if not there already, it should help stem future defaults and prevent that problem going forward. i think really the focus right now is on stimulating demand. it's on trying to prevent or avoid some of the foreclosures with the homes, the mortgages that already have defaulted, and it's just working through this overhang, and it's going to take time. a lot of time which mean that is the housing recovery is under way but it could be suppressed. some of the upside home
construction could be suppressed. >> armando, where is the bottom? >> well, depends on where unemployment goes. the mortgage assistance programs of the government can only help those qualified borrowers that have an income. and so if you can predict where incomes -- unemployment is going to bottom out, then that's where the housing market will bottom out. >> good answer. thanks to all three of you for joining us. we appreciate it. >> thank you. >> just ahead on "street signs," the real economy is on the mend. you will never believe how much americans are spending on the virtual economy. i cannot believe this story. and tonight at 7:00 p.m., a special kudlow report. the future of capitalism. what is working, what is not working. exclusive interviews with senior economic adviser larry summers. we also have treasury secretary tim geithner. that's all coming up tonight on "the kudlow report." "street signs" is back right after this break. national car rental? that's my choice.
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oil prices right now above $77 a barrel. i'm sharon epperson at the nymex. we're looking at government forecasts that gave a bit of a glimpse into the winter weather outlook. they're saying going to see warmer temperatures in the north. in the south it will be a bit cooler. that's not what's really affecting prices today. we're looking at an abundance of supply of natural gas and of heating oil, which has caused a steep slide we've seen in prices over the past year. what may keep prices somewhat supported in terms of heating oil for consume efforts this winter is the dollar. the same effect we're seeing for crude oil prices lifting heating oil over the past three-months time. the crude oil market getting the lift not only from the weakness in the dollar but also inventories, product inventories drawing much greater than expected. down about 6 million barrels. this may be another record close for 2009 or a high close for 2009 above $77 a barrel. melissa? >> wow, 3.33% just today,
$77.64. sharon epperson thank you so much. upbeat headlines coming out of the bill council in north carolina. bill griffeth is there with a very special guest. >> energy is the theme for this particular ceo summit, the business council. we're down here in cary, north carolina. i can vouch for what sharon was saying, it is colder in the south. michael morris is here, the ceo of american electric power. with energy being this theme this time around, the pursuit is to find a way to achieve a low carbon, high growth economy, and it's up to companies like yours to help achieve that, right? >> well, it is, indeed. it's one of those equations that seems almost impossible to solve, but there are answers, and we'll find those answers. we really will. it's a challenge, but, look, we've been at this at american electric power for 104 years.
we've been pushing that technology nfl aenvelope all th while and we'll keep doing that. >> you find yourself in a difficult situation with this appeals court ruling last month that allows states to sue companies like yours for their carbon dioxide emissions as a violation of the clean air act. now, you know, is this something that should be solved legally or do you leave it to congress or how do you think this thing should be resolved? >> well, clearly i think the original view from the court was accurate, that this is something that is a legislative issue, not a nuisance interference, it's a tortious interference type of claim that's been made. the circuit court of appeals said no and sent it back and said let's have a trial on it and see. at the end of the day it's a unique legal principle that may or may not pass muster. it's us and most other utilities. so we'd hope that the right
prevails. i'm a lawyer by training, and i rather in law school when they said my client -- justice prevailed and the client said appeal, appeal. this is an interesting issue. it really is a legislative -- it's a societal policy issue that ought to be handled by congress. >> but what it's doing is it points up the transformation of the business models that you folks in your industry are having to change. >> of course it does. >> the way you do business. >> of course it does. >> but how much is it going to cost? does a greener technology come at the expense of profitability? you have to weigh your fiduciary dude with being a good citizen. >> one of the things that's so difficult for the average citizen to understand, we're a regulated utility. we serve 5.2 million people in 11 states. in all 11 states we're regulated. if the regulations or legislation calls for me to invest another $1 billion to
clean up one of my power production facilities, it doesn't affect earnings at all. in the most odd ways, it's a plus to earnings, not a minus. my customers will pay for the additional capital invested, and it will change the price of electrici electricity. my customers may end up burning less, using less, and revenues might go down. but i have tried so hard in testimony in front of both the house and senate to explain that to our elected officials. believe me, it's a glassy-eyed conversation. >> as we've discussed here before, it's not so much an environmental issue anymore. it's become a political issue. >> without question. >> can you achieve lower carbon emissions and still maintain higher growth? >> i think you can. there is no question that the u.s. economy will continue to electrify. there are going to be more tools, more electrification of the economy. it will go for energy security
sense, for independence sense, to electric vehicles there. will be massive demand for electricity as we go. this is a technology challenge. what we're doing in west virginia right now is captured carbon, storing carbon. not inexpensive, but technologically feasible. today transalta, a canadian company, announced an $800 million undertaking in the same space. it's there. >> it's happening. michael morris, thanks for joining us. chairman and ceo of american electric power with us. >> thanks, bill. you will come back a little later because i was sincere lly riveted with your interview with john mack. it's time to get ready to stop trading with the one and only jim cramer. if you're trying to figure out how to navigate this market, is now the right time to be in options? we'll look at that a little bit later. to convert plants into components.
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that's a lot of money anywhere. it's a lot of money here. i do understand that. at the same time it has to be broader than let's just focus on compensation. why don't we focus on job creation? >> that was morgan stanley's ceo john mack talking compensation with our own bill griffeth and a really riveting interview they just did a short time ago. bill, you know, he was answering the hot question of the day. we have heard it every newspaper, every network, everybody is talking about this, the idea that bonuses are back, but main street america is still in shambles. he said something else really interesting. he said we've done a lot wrong but we've done a lot right, right? >> i mean, they're very sensitive to the public relations, the optics as a lot of pr people like to say. they're mindful there are very many people in this country who are still suffering as a result of the meltdown of the economy last year, but they are also mindful that they have a fiduciary responsibility to their shareholders, and they have produced record profits
again. at least those that have been out from under the t.a.r.p., morgan stanley, jpmorgan, goldman sachs, and this is how they compensate their workers. so while they are sensitive to the issue of bonuses and compensation on wall street, they are also realizing that they have a public relations problem. >> i also thought it was interesting, you said to him does it take you back to that moment when andrew sorkin has the book out, you say do you go right back to that moment where you feel everything that happened a year or so ago, and he kind of cringed a little bit. >> he said, and he told me this afterwards as well, he could bring those emotions up just like that. that is a time frame he never thought he would live through, and he never wants to live through it again. do you want to go through this quote? there's a moment in the book where he's describing john mack on the phone with mitsubishi. morgan stanley is bleeding capital. it's bleeding cash.
they're in dire straits. lehman has gone under. goldman is in trouble. morgan stanley is in trouble, and john mack is on the phone with the ceo of mitsubishi in japan. he has an interpreter trying to negotiate a $900 billion capital infuths. his assistant keeps saying hank paulson is on the phone. he needs to talk to you now. john mack waves him off. then he says tim geithner, the president of the new york fed has to talk to you. >> we have the sound bite. >> and then he hears what -- he then says to his assistant, you can tell the gnew york fed to d something. i asked him if it was accurate. here is what he said. you are quoted that i can't even say this on television here as instructing the new york fed president what he could do. was that an accurate quote? >> it was. look, we were in a battle, and i had to get that money.
i was not getting off the phone to talk to anyone. >> let's make no mistake. he's embarrassed that he said it and that we know about it, but it just speaks to the emotions of the time and he could conjure them up just like that. it was an amazing time and it's a pretty good read, too. andrew ross ksorkin's book. >> i already ordered it. the entirety of that interview is on the website. thank you for joining us. >> you bet. it's time to "stop trading" because "mad money's" jim cramer is here with me. what did you think about john mack's answer to the big question of the day, which is the divergence between main street and wall street. we see dow 10,000, bonuses are back at the same time main street is in shambles. >> in college i went for a master's degree in come nirm and -- communism and we learned
these things. lenin thought the bankers were making too much money. confiscated all their wealth. peasantry felt great about it. they were rejoicing and the bankers, many of them were killed, and there was a terrific, terrific surge of opinion that lennon win was a g man. >> didn't come out well. >> i know most of lenin's speeches during the period and it's about stringing up guys like john mack and feeling great about t we studied it. it didn't work, but it did happen. and it was not because the people were -- the peasantry was doing very horrible and then stalin annihilated the peasantry in the next act. it didn't work. i'm not being facetious. that's what we did in the soviet union. that's what i studied and that's
what i thought at the time when i was a callow youth was a good idea. i was living in my car at the time, the fact i had no money, it seemed justified. but justification of what someone makes and someone doesn't shouldn't rest on the idea i was living in my car, drinking too heavily, and i had an ax and shotgun. we want to do the right thick and the right thing is if you think they're paid too high, then raise their taxes. maybe put a windfall taxes. i'm against this, but the idea that -- i was poor, and i study ed lenin and i was very caught up in this notion that the peasantry should win. >> let's give them some trades. >> the peasantry. like a sack of potatoes. i'm not talking about money angles. i'm being serious. >> i know. >> you have the handbook for all the people who are complaining. we can put it into place.
we can. i wanted to. i wanted to do it for ten years when i was poor. it was a great satisfaction. all right. >> dow turned positive while you were talking. >> geez, that's more people making money. is that a horrible thing. linear tech said they're seeing such incredible demand, they have to start make new models of semi equipment. that's a play on cadence. the foremost eda company. that's when you really go full bore when you're finally starting to design new machines to get new semis. i don't think people realize the power of the semi cycle. newer model cars, the toyotas of the world, what ppg was saying it was a nice rump and it wasn't
all cash for clunkers, a nice ramp for production in autos. johnson controls, i think people have to recognize there is demand in the pipeline for autos which is not thought of because everyone thought it was one time only, but it's happening. people should get a little more bullish about that industry. bullish into the call. >> all right. we got to go there. jim, thanks so much. >> don't forget, what is to be done if you want to know what to do with the banks? >> "mad money" coming up at 6:00 and 11:00 eastern. anybody who loves to watch television, california wants to ban your big screen tv to cut down on energy use. i'm serious. is it valid or just another way for government to creep into your living room? we'll be right back. and a quick reminder, all the recommend dathss expreationy jim cramer are solely his and are not the opinions of cnbc and may have been previously
for televisions. is it a good idea? joining us is gary shapiro, president and ceo of the -- the way i understand this regulation is that they're saying a lot of the flat screen tvs use too much power and they're going to limit what you can buy and by 2013 it looks like a lot of the big screens we all have now, you couldn't even buy them because they wouldn't fit the standards. is that accurate and does it make sense? >> it's sad but true. you have some bureaucrats and greentremists who have ganged together and after working on hd tv it kills me. we're going to 3d tv and internet tv, for a couple lightbulbs' worth of energy, they want to shut it off. they've said we want to design your tv set. >> noah, is it true that a lot of the screens that are on the
market right now, you know, a couple years from now whenever it is, i wouldn't be allowed to buy them? >> let's start at the beginning here. california has been leading the way in setting energy efficiency standards for a wide range of products. they're just adding tvs to the portfolio now. by 2013 a full three-plus years away, new tvs will use 50% less energy. still be able to buy any size tv you want. get that same great high definition picture, and the savings are massive. we'll cut the state's electric bill by $1 billion a year, eliminate the need to build a large 50 mega watt power plant and eliminate the emissions of global pollution. >> if california says i can't buy a tv, what's going to stop me from going on the internet or just crossing the border into nevada or arizona and going and buying the other tv? >> you know, you're absolutely right. it is arbitrage. noah is simply making up fact. ignoring the fact that 80% of the tv sets sold in california
is already energy efficient. he took all those out of his research and gave it to the government. what's going to happen? california retailers will lose business to nevada retailers. it's going to cost about $50 million in tax revenue per year. it's going to cost about 5,000 jobs. in my entire career of dealing with governments around the world, this is the least factual-based, the silliest -- noah has been trying to regulate tv sets like this for 20 years. thank god he didn't, we wouldn't have hd tv or the internet. >> let's look at the facts. this is from the environmental protection agency. data supplied by your manufacturers. there are already 300 models on the market today that meet these stringent 2013 standards. these are made by all the leading manufacturers like samsung and sharp and using off the shelf technology. so i don't know where -- >> over 300 tv sets. we're talking about large tv
sets that have features like 3d tv and can access the internet. none of the hd tv sets first sold would meet your stringent requirements. we're talking about two lightbulbs. when you turn on the tv set, the odds are you're turning off the light anyway. >> we only have a couple seconds left. go ahead. >> these standards have widespread report. vizio has had the courage to stand up and say these standards are readily achievable using off the shelf technology. >> that is bull. >> let me finish. >> you're going to be able to buy any size tv you want. >> that's bull. >> we'll let you continue this in the break on your own. thanks to both of you for joining us. we appreciate it. with the dow hovering around 10,000, many investors are asking what now? one option. options, are they the best bet right now. find out when we come back next. (announcer) we call it the american renewal
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>> i think it's a great bet. we covered call strategy for high net worth individuals throughout the country. we feel it's similar to the market we saw in the '70s, as far as sideways, up and down. 10 to 15 years of sideways markets. we're sitting on ten years already. if we can buy good quality companies and get paid a 3% dividend and get an extra 8% to 10% yield through covered calls, we can generate, again, a 10-plus percent return, if markets go sideways or even slightly down. >> steve, you said it could potentially be a $25,000 nightmare. how come? >> well, i'm so glad that tyler mentioned the idea of selling covered calls, because it is a failed strategy. you may be able to make the dividend and the premium for a short period of time. if the stock were to go up, you lose all the upside. if the stock were to go down, you're basically buried and you don't have any chance to rewrite your calls. basically unless the market goes sideways, if the market goes
sideways, it's a good strategy. but if it continues to go sideways, the premiums will decrease anyway. so it's eventually going to be a failed straight ji. i think writing covered calls, you may get pennies, but you take on all the extra risk. >> tyler, what do you say? >> we've been managing a successful strategy for a very long time. i think the biggest thing that we do with our diversified portfolios is we use some of that income to buy puts on the s&p 500 that are out of the money and fairly cheap. so we've managed to actually increase the strike prices as this market has moved up. and again, with our strategy, we're looking for a stock that goes sideways. we're not looking for stocks that go to the moon. we don't need them to go to the moon. we want to find good, consistent names that proip good dividends where we can pick up good premiums in a low interest rate environment. >> steve, you say that professional traders love it when retail investors get into
options? >> yeah, this is the point. i think if someone of tyler's ilk can manage a portfolio of covered calls, that's fine. but i'm seeing more and more that the individual investor is being urged to get into the options market. and quite right. i mean, if the individual investor is buying calls, and fattening up the premium, investors like tyler just love that and they'll go on the other side of that trade and make money. so my thesis is the individual investor should not investing in options. talk about money for nothing. wait until you see what american consumers are spending $1 billion on this year. but first, here's your trend of the day. the cnbc "trend tracker live data board" is brought to you by cme group.
economy is booming. now, according to a new study called inside virtual goods. the amount of real money spent on fake stuff like imv or second lifer, or getting better gear for your war craft, the mope has doubled in the last year to $1 billion. and the study predicted it will rise to $1.# billion next year. half that money spent on social networking sites like facebook, and the other half on gaming sites. it is free to join the sites and after a while you get hooked and you want to buy stuff even if you don't have much money. >> they're really like hobbies. in the same way that any human out there spends money on his or her favorite hobby, whether it's new golf clubs or new ski skoet if you're into skiing, i think spending a few dollars to make a virtual representation of yourself is perfectly rational. >> reporter: and it's cheaper to dress up your character than dress up yourself. but most of that money is not going to facebook or myspace, but to third-party applications. they suggest